PPG Industries (PPG) Q4 2004 earnings summary

Executive summary

• 2004 sales rose 9% to $9.513B; net income increased to $683M from $494M, and diluted EPS rose to $3.95 from $2.89.

• Higher volumes, currency and manufacturing efficiencies supported results, while lower pricing and higher input costs constrained gross profit.

Financial highlights

• Revenue was $9.513B, up 9% YoY; volume contributed 7%, foreign currency 3%, and lower selling prices reduced sales 1%.

• Gross profit increased $279M; gross margin held at 36.9%.

• Net income was $683M vs. $494M; diluted EPS was $3.95 vs. $2.89. 2004 SG&A included $20M pretax stock-option expense ($13M after tax; $0.07/share).

• Operating income was $1.193B vs. $978M; effective tax rate was 30.29% vs. 34.76%.

Outlook and guidance

• Expected continued sales growth in 2005, supported by favorable global economic conditions; inflation’s effect on production costs was expected to exceed 2004 levels.

• 2005 effective tax rate estimate was 31.5%; Medicare subsidy benefit to postretirement costs expected to be ~$25M, with total pension and postretirement costs forecast to rise only slightly.

• 2005 capital spending, excluding acquisitions, expected at ~$350M; non-U.S. pension contributions expected at ~$20M.

• Coatings raw-material costs expected to rise at least $50M in Q1 2005 and remain elevated; natural gas cost estimated at ~$6.30/MMBtu in Q1, 12% above Q1 2004.